Wade, are you playing the stress test details to be announced soon? Details will be followed in a few days by designation of which banks passed (all probably), including which will need more capital.
Friedman Billings has an opinion about financial stocks' reactions to the stress test details to be announced:
Friedman Billings expects the stocks of the cos who pass (or are rumored to pass) the stress test will trade up strongly. They note yesterday, COF closed up 12%, apparently on market chatter that the co had passed the stress test. They believe most cos should "pass", none will be described as failing, but some will need more capital; they also believe the govt will not let most cos repay TARP. They expect that most cos will be told that they have adequate capital, and so most of these cos may see a near-term pop in their stocks. While everyone won't fall into this category, this suggests that there is near-term risk in being short the group. However, the risk to owning the group is if the govt lays out a capital target that is stricter than the market anticipates, it would be viewed as a negative. They believe that higher capital levels for the group would be a positive in the long-run, but it may be painful trying to get there. In today' release, they will look for, most importantly, capital targets, although they do not expect a specific number, (they have heard about 3% TCE above risk weighted assets).
Horsehead and Orion Nebulae
AI
